Owning a car is a major financial commitment. You will have to budget for maintenance, fuel and, most crucially, comprehensive car insurance. The insurance secures you financially in the face of a tragic event involving the car. However, when you buy or renew your insurance, you will be asked to share your four-wheeler’s Insured Declared Value (IDV). This article will familiarise you with IDV in car insurance and its importance.
What is the Insured Declared Value (IDV) of a car?
The Insured Declared Value or IDV is the car’s current market value. Your brand new car’s value depreciates as soon as you drive it out of the showroom. You might be wondering what depreciation is all about. The term “car depreciation” refers to the loss in value of your vehicle due to normal wear and tear. The depreciation value is deducted from the car’s selling price to figure out the IDV of the car.
The IDV has a significant impact on the cost of your car insurance. You will have to pay a higher policy premium if your IDV is higher. However, due to the higher IDV, you will receive a larger payment in the event of a mishap. Similarly, if you select a lower IDV, the premium you pay will be lower. However, a lower IDV reduces the amount of your claim to a great extent.
How to calculate Insured Declared Value (IDV) for your car insurance?
Your car’s IDV depends on many factors, such as its model and the selling price quoted by the manufacturer. If your car is old, the depreciation rate will be higher. Bear in mind that the IDV of a brand new car will always be high. However, its value will drop over time. If you are not sure how to compute the IDV, use the formula given below:
Insured Declared Value (IDV) = Selling price quoted by the manufacturer x depreciation
If you want to compute the IDV while including the accessories, use the following formula:
IDV = (Selling price – depreciation cost) + (Cost of accessories – depreciation value of these accessories).
The depreciation rates are fixed under the Motor Tariff Act to simplify the concept of IDV. Refer to the table below to know the depreciation rates:
| Car’s age | Depreciation percentage for IDV calculation |
| 0 to 6 months | 5% |
| Between 6 months and 1 year | 15% |
| Between 1 year and 2 years | 20% |
| Between 2 years and 3 years | 30% |
| Between 3 years and 4 years | 40% |
Importance of choosing the correct IDV
The IDV becomes crucial if your car gets stolen or is damaged beyond repair. In such instances, the amount of your comprehensive car insurance claim, or simply put, the amount of compensation you receive is determined by your IDV.
- Impact on the premium
Your policy premium is directly proportional to your IDV. The smaller the IDV, the lower the insurer’s liability in the event of a claim. As a result, they will charge you a lower insurance rate. If you choose a higher IDV in car insurance, the premium amount will also be higher.
Many people intentionally declare lower IDV to save a few thousand rupees on the premium. But, doing so can result in a major financial loss in the event of a mishap or theft of the car.
- Impact on the claim amount
- Understating the IDV
If you choose a lower IDV, you can face a major financial loss during the claim settlement process. Let’s use an example for better understanding:
Let’s say your car’s current value is ₹4 lakh, but you have opted for an IDV of ₹1.5 lakh to save money on the premium. In this case, if your vehicle is stolen or is irreparably damaged, the maximum compensation you will get from your insurer is ₹1.5 lakh. As a result of the lower IDV, you will have to bear a financial loss of ₹2.5 lakh.
- Overstating the IDV
If you think you can claim a higher amount by overstating the IDV, you are wrong. The insurer pays out according to the type of loss, not only the IDV. It means that overstating the IDV of your car will only increase your premium burden and will provide you with no significant benefit.
- Claim rejection
It’s also possible that the insurance company will reject your claim application if you declare an incorrect IDV.
To sum it up
When calculating your IDV, consider the vehicle’s type, age, registration location and make and model. If you have difficulties with manual calculations, use the online IDV calculator available on various insurer websites. Remember that declaring the correct IDV saves you money and ensures that your claim is processed smoothly.